The Accent Group Ltd (ASX: AX1) share price is acting volatile this morning. It’s currently in the red after providing a FY22 trading update.
Accent is an ASX shoe retailing business that owns a number of brands and is also the distributor for other brands. In Australia, it sells through brands like The Athlete’s Foot, Glue, Stylerunner, CAT Footwear, Timberland and, most recently, Reebok.
FY22 update
The company said that its sales and gross profit margins for the first 18 weeks ending 31 October 2021 were significantly affected by government mandated store closures of more than 400 of its stores across Australia and New Zealand.
These impacts to Accent have led to an approximate $40 million hit to profit at the EBIT level (EBIT explained). Management calculated that revenue impact was $86 million, including online sales, below the original management plan – that was around 26% lower.
During that period, there was a significant focus on controllable costs and targeted promotional activity ensured that inventory was well managed. The gross profit margin was down 700 basis points (7.00%).
Accent said its inventory remains clean of aged stock due to the markdown action taken, with approximately $20 million of additional stock largely sitting in core and current seasonal styles.
Management said that the company is well positioned to take advantage of customer demand from November to January. The company isn’t expecting any material impacts or inventory shortfalls from globally reported supply chain issues.
Growth after lockdowns
Accent told investors that since the re-opening of NSW and Victoria, its stores have been performing strongly.
NSW like for like store sales between 11 October and 14 November were up 8.4% on last year. Victoria’s like for like store sales between 29 October to 14 November were up 5.9%, cycling against the Victorian reopening last year.
Other positive developments
Accent revealed it has opened 63 new stores in the first 20 weeks, with 800 stores currently trading. It’s now expecting to open more than 120 stores in FY22. New stores are trading strongly.
New Glue stores were opened in Chadstone and Highpoint in Melbourne, with three more stores to be opened before Christmas. Like for like store sales in Glue since re-opening have been up more than 20%.
Stylerunner now has 14 stores open and a further six stores are expected to open by January 2022. Management said sales continue to perform strongly.
It has signed a 10-year ANZ distribution agreement with Reebok. The distribution agreements with CAT Footwear, Timberland and Saucony have all be renewed for three to five years.
Summary thoughts about the Accent share price
It was going to be a tough to beat FY21’s strong trading, so the lockdown was definitely going to have an impact. But it’s good to see that sales and margins are recovering. I think the business has a promising future, but there will be volatility with the profit – retail is not a defensive sector. More stores and more brands is a good combination. I also like the attractive dividend returns.
